2009: A makeover year for MFs

2009 has been a year where the mutual fund industry has witnessed a transformational shift in the way business is done. CNBC-TV18's Mrinalini Krishna and Priyal Guliani report on how the Securities and Exchange Board of India (SEBI) has enforced game changing moves in mutual funds.

No entry load - 2009 highlight

Market regulator SEBI cleaned up of the mutual fund industry, bringing in a flurry of reforms and ushering in transparency. The most significant one was the abolition of entry fee on mutual fund schemes.

On June 18, 2009, CB Bhave, Chairman, SEBI, had said, "There will be no entry load on any mutual fund schemes. The investor will decide the commission that he is to pay to the distributor directly. The board also decided that if the distributor is selling different schemes then he must disclose to the investor as to what commission he is getting for different schemes."

So far, every time an investor bought a mutual fund, a fee of 2.25% was charged upfront by asset management companies (AMCs) and mutual fund distributors. But now, fund houses and distributors had to learn to live by the new rules, where the customers could choose to pay an advisory fee.

Despite this shift, fund houses saw their average assets under management (AUM) rise. They crossed Rs 6 lakh crore in May, Rs 7 lakh crore in August and Rs 8 lakh crore in December.

But equity funds saw outflows to the tune of over Rs 5000 crore since August, largely due to profit booking. New fund offers (NFOs), the key sales drivers for the industry, failed to take off with nine new funds managing to garner a little over Rs 1000 crore.

Regulator's tough stance

The regulator, meanwhile, came down on fixed maturity plans (FMPs) as well. It directed that no indicative yields were to be announced for any debt mutual fund and liquid funds were allowed to invest into money market instruments of upto 91 day tenure only. That's not all the regulator demanded that the trustees of asset management companies played a more engaging role.

In October 2009, KN Vaidyanathan, Executive Director of SEBI, had said, "Our sense is to re-emphasise the sense of responsibility and accountability that the trustees have. They are the investor facing entities, they have the fiduciary responsibility in a sense they are the first level regulators."

Year-end cheer for MFs

By the end of the year, brokers had something to cheer about. They could now buy and sell mutual funds through exchanges, pretty much like stocks.

The mutual fund industry has changed over the last year, possibly beyond recognition. The new regulations have broken the shackles of traditional practices and have made mutual funds one of the most affordable and accessible financial instrument for Indian investor.

Source : CNBC-TV18